In general, investors attempt to minimize the risk associated with investments. Heretofore investors have attempted to minimize risk associated with investing in ventures by assessing quality of management, business model risk, market opportunities, and possible returns on investment (ROI). Nevertheless, predicting ROI can be a difficult and inexact practice.
Such investment risks are particularly prevalent with early stage start-up or later stage technology dependent companies. Predicting success in such companies can be very challenging. Often such companies have few tangible assets that can be used as collateral in obtaining financing. Nevertheless, early stage and technology dependent companies can have great value in intangible or intellectual assets. Intellectual assets can include ideas that may or may not be incorporated into patents or patent applications. Intellectual assets can also include domain names, trademarks, copyrights, know-how, trade secrets, and a variety of other intellectual properties.
Investors can invest in the form of debt (i.e., a loan), equity (i.e., common or preferred stock), or a combination thereof. Conventionally, investors can recoup losses from failed investments (regardless of whether or not the investment was directed to early stage or technology dependent companies) by taking a tax deduction for loss or worthlessness of the loan or investment. The amount, timing and characterization of such a tax deduction differs depending upon whether the venture capital or private equity firm is treated as an “investor” or in the “trade or business of making loans”. Typically, venture capital funds are treated as “investors” by the Internal Revenue Service (IRS). In such cases the loss can be taken as a capital loss. In order to take advantage of this capital loss, the burden is on the secured party to demonstrate that the loan or investment is completely worthless. Generally, such a demonstration involves either the commencement of a lawsuit against the debtor to obtain a judgment and collection on the judgment or a strong showing that taking such legal steps would not result in any recovery of value or payment on the debt. The nature of the deduction, the timing of the deduction and the manner of satisfying the secured party's burden of demonstrating worthlessness are all highly fact sensitive and differ from investor to investor and transaction to transaction.
Thus, there is a need for a system for and a method of risk minimization and enhanced returns in an intellectual capital based venture investment. Further, there is a need to recoup from losses incurred in investments other than taking a tax deduction for loss or worthlessness of the investment or loan. Even further, there is a need to make investment risk determinations where an investment is made in a venture having an intellectual asset, such as, a patent or patent application.
The teachings hereinbelow extend to those embodiments which fall within the scope of the appended claims, regardless of whether they accomplish one or more of the above-mentioned needs.